Limb development is dependent on epithelial-mesenchymal interactions. The apical ectodermal ridge (AER), a specialized epithelium at the limb tip, stimulates proliferation of underlying mesenchyme, causing directed limb outgrowth (for review see ref. 2). Several genes are expressed in the mouse AER, including Fgf-4 (fibroblast growth factor-4) and Bmp-2 (bone morphogenetic protein-2), both of which encode secreted signalling molecules. Using a culture system developed to explore the function of molecules produced by the AER, we have shown that FGF-4 protein stimulates proliferation of mesenchyme in the early mouse limb-bud. This suggests that FGF-4 serves that major function of the AER. In contrast, BMP-2 inhibits limb growth, suggesting that as a result the AER may serve a hitherto unrecognized inhibitory function. Furthermore, the extent of limb outgrowth can be modulated by mixing the two signalling molecules, suggesting that limb growth is regulated by a combination of stimulatory and inhibitory signals from the AER.